Amid the north London hinterland of industrial estates and steel-shed superstores, the capital's lowest-priced diesel fuel is brewing. At 90.5p, it is 9p a litre less than the London average. It is also greener - producing far fewer toxic emissions than conventional fuels.

Pure Fuels is London's first - and, to date, only - consumer biodiesel producer. It is the vision of Tom Lasica, a former TV documentary maker and his cameraman colleague Kees 't Hooft. The pair caught the biodiesel bug in Ukraine. "We were filming an agricultural project, and tried to convince the farmers to turn their crop waste into diesel fuel," says Lasica. "Then it occurred to us that we should do the same thing in our own backyard."

They used their own money to start Pure Fuels. Novices to the chemistry of converting used oil to biodiesel, their learning curve was at times extremely steep. "We got lots of advice from the biodiesel community," explains Lasica. "But grants aimed at green-energy projects were a bureaucratic vicious circle - unworkable for recycled eco-fuel production. Other than the 20p a litre reduction in fuel duty given to all biofuels, we have had no government assistance."

Pure Fuels started selling biodiesel to the public in February this year. When I arrive at the industrial unit, Lasica is decanting a batch of used cooking oil dropped off by a neighbour-ing kosher catering company. In 24 hours the oil will go from meatballs to motors.

Pure Fuels is currently recycling 25,000 litres of used cooking oil into biodiesel every month. Some of it comes from local sources - including a monthly bottle from the managing director of the industrial estate where the company is based. The rest is either bought in, or collected by Quenton Kelley, a biodiesel enthusiast who used to run his own car on raw cooking oil and has now set up Green Miles Fuels. "Most waste cooking oil can be turned into biofuels," he says. "I go to chippies, canteens, kebab shops - anywhere where they use oil for catering. The only places I can't collect from are Chinese restaurants. Unfortunately, the biodiesel recycling process won't work with anything from a wok."

If all 30m litres of used oil London produces each year were recycled it could green the emissions of 18,000 diesel vehicles. At present, only half the capital's waste oil is reused and there is growing competition for it from traders looking to make quick money.

"Green subsidies have generated a strong demand for recycled oil in Germany," explains Kelley. "A mafia is developing. They're stealing some of my clients - including the caterers at a major London concert hall - then selling the oil abroad."

"That's used oil that I could recycle locally being shipped off in tankers to another country," adds Lasica. He finds it exasperating that diesel is being burned to transport biodiesel.

As we talk, a steady stream of customers pull on to the Pure Fuels forecourt. Dan, an environmentalist and carpenter from Hertfordshire, arrives on his monthly pilgrimage to fill up his Audi. He loads his boot with plastic containers, taking 200 litres of fuel to share with his friends.

"People like Dan come here to make an environmental statement," says Lasica. "But four out of five buy our biofuel because it is cheaper than conventional diesel. Our most frequent client is white van man. Nobody expects white van man to turn green, but he's happy to discover that recycled biodiesel is both cheaper and better for the environment."

News of bargain diesel spreads quickly when the price of ordinary diesel has just passed £1 a litre. A steady flow of potential new customers inquire about running their cars on yesterday's cooking oil. Lasica cheerfully explains that it can be mixed with regular diesel, that cars less than 10 years old need no modifications, and that many vehicles run more smoothly on biodiesel.

Most of Pure Fuel's customers have no problems switching to biodiesel. The worst complaint Lasica has had was from a driver who said he had noticed a frying smell coming from his exhaust. And although some very modern cars have notoriously fussy on-board fuel-management computers, Pure Fuels supplies London limousine company Executive Cars with biodiesel for its £50,000-a-motor BMW series 7 fleet.

But, despite the environmental and economic benefits of recycling used oil, Lasica and his fellow pioneers are fighting a rearguard action against the backlash surrounding conventional biofuel production. Some environmentalists argue that if crops such as corn and rape are turned over to biofuel production, important food resources are lost. And if this cultivation involves use of fossil fuels and fertilisers, the "carbon-neutral" benefits of these biofuels are negated. Critics also say that biofuels are directly causing deforestation in order to make way for palm-oil plantations.

Jan Cliff, of Wales-based Sundance Renewables, one of the first enterprises to sell recycled biodiesel in the UK, fears that some people now believe that recycling oil to make fuels is displacing agricultural production. "The public debate about food versus fuel does not apply to our recycled oils - but often the media doesn't differentiate."

So, despite their green credentials, producers of recycled biofuels say they are having to contend with negative media coverage and a government expecting them to behave like corporate oil giants. For example, Pure Fuels would like to work with independent garages to set up a network of pumps around London, but this is proving impossible while there is no sensible government standard for recycled biodiesel.

"We mix waste oils together," explains Lasica. "Each has different properties. Then we are asked to pass the same test as multi- national producers using solely rape-seed oil. So we often fail, even though our biodiesel will run your car safely for 100,000 miles."

"American producers have the same problems. But over there stars such as Daryl Hannah and Willie Nelson are campaigning for a recycled-biofuel standard. So if any UK rock stars or actors want to run their cars on biodiesel, we will happily fill their tanks."